Tax Law Saves Verizon $17 Billion In Deferred Taxes

Verizon Communications Inc. said it expects to book a nearly $17 billion gain in its fourth-quarter profit due to the new tax law.

Reducing the corporate income-tax rate will slash Verizon's $48.3 billion deferred tax liabilities by $16.8 billion, the company said in a securities filing Wednesday. Verizon will record the reduction as a one-time gain boosting earnings.

Continue Reading Below

Similar bookkeeping moves are expected from other U.S. firms as they report results, even if the numbers won't be as large. For the most part, investors and analysts will look past these paper gains as they don't result in money that companies can spend.

Most of Verizon's deferred tax liabilities came from buying airwaves licenses and investing in network infrastructure, a company spokesman said. Verizon said it only had to pay this tax liability in the event the company was sold, and even then, the taxes would have to be paid over the course of several years.

In other words, deferred taxes aren't something Verizon was planning to pay anytime soon, so the savings won't translate into cash. Because deferred tax liabilities are taxes payable in the future, the tax law's reduction in the corporate tax rate to 21% from the previous 35% reduces those liabilities, leading to a gain.

The one-time change will add $4.10 to the company's 2017 earnings per share. Analysts had estimated 2017 earnings of $3.68, excluding any special items, according to Thomson Reuters. In 2016, Verizon's per-share profit was $3.21.

The tax law is causing all sorts of aberrations on company earnings. Some companies, like General Motors Co. and Bank of America Corp., are taking hits to their profits because they have deferred tax assets, or credits and deductions used to defray future tax bills, which are less valuable now that the tax rate has been lowered. Others, like Verizon and Wells Fargo & Co., are seeing a benefit.